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GLOBAL MARKETS-Stocks test record highs, pound braces for election all-nighter

Published 12/12/2019, 10:40
Updated 12/12/2019, 10:45
© Reuters.  GLOBAL MARKETS-Stocks test record highs, pound braces for election all-nighter
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* Pound rides high as traders brace for British election

* Trump to meet advisers on China tariffs

* Dovish Fed message sees dollar touch lowest since August

* Treasury yields rebound in Asia

By Marc Jones

LONDON, Dec 12 (Reuters) - World shares took a fresh run at

record highs on Thursday, as all the right messages from the

U.S. Federal Reserve set traders up nicely for a packed day of

milestone central bank meetings and a Brexit-defining election

in Britain.

The Fed kept U.S. interest rates unchanged, as expected, but

it was a message that it would take an unexpected and

"persistent" rise in inflation to lift them again that buoyed

the bulls and shoved the dollar to its lowest since August.

It helped Asian shares rally almost 1%, despite reports

Washington will press on with new China tariffs, and solid

0.2%-0.5% gains in Europe early on left MSCI's broadest index of

world shares .MIWD00000PUS just 0.1% shy of its January 2018

all-time high.

"The Fed's accommodative stance does support equities, but

the chance of a disruptive election outcome in Britain is very

real," said Michael McCarthy, chief market strategist at CMC

Markets in Sydney.

Traders are bracing for a series of make-or-break events

over the next few days that have the potential to cause huge

swings in financial markets for months to come.

Sterling was hovering at its highest in more than two years

versus the euro and close to an eight-month high versus the

dollar as voting began in an election that will determine

whether Britain exits the European Union next month.

Expectations are that the ruling Conservatives, led by Boris

Johnson, will score a majority that allows his Brexit deal to be

passed by a new parliament, but the latest polls have shown the

lead shrinking.

Exit polls for Britain's election will begin around 2200

GMT, after voting closes, with clarity over whether their will

be a clear winner or another hung parliament likely between 0400

GMT and 0600 GMT. Following a 10% surge by the pound in the last few months,

Traders and investors are now hedging their bets. Union Bancaire

Privée's Global Head of Forex Strategy Peter Kinsella said a

Conservative majority remained his expectation, however.

"We think a move to levels of around $1.35 or even $1.37 is

entirely feasible," if there is a decent Conservative majority,

whereas with another hung parliament "you are definitely back

down to $1.26-1.27."

It was last at $1.3205 GBP=D3 , just shy of its highest

since March and close to a May 2017 peak against the euro at

84.32 pence EURGBP= .

The euro EUR=EBS was also climbing against the weakened

dollar. It rose as far as $1.1144, close to a five-week high

before Christine Lagarde's first meeting as President of the

European Central Bank.

She is almost certain to keep rate rates on hold, but her

style and signals will be closely watched by economists,

especially with the bank due to update its forecasts and make

some changes to its policy framework next year. Switzerland's central bank had got up early and already held

its rate meeting meanwhile. Negative interest rates remain

central to its plans, the SNB's Chairman Thomas Jordan said as

it maintained its ultra-expansive monetary policy. The Swiss

franc barely budged.

There were fresh U.S.-China developments to digest too.

U.S. President Donald Trump is expected to meet top advisers

on Thursday to discuss tariffs on nearly $160 billion of Chinese

consumer goods that are scheduled to take effect on Dec. 15,

three sources told Reuters. Trump is expected to go ahead with the tariffs, a separate

source told Reuters, which could scuttle efforts to end a

17-month long trade dispute between the world's two-largest

economies.

The dollar index .DXY against a basket of six major

currencies fell 0.3% to 97.057, briefly touching a new

four-month low.

Treasury yields had fallen in reaction to the Fed's

comments, but they rebounded slightly in Asia and Europe. The

yield on benchmark 10-year Treasury notes US10YT=RR rose to

1.7966%.

In commodities, U.S. crude CLc1 edged up 0.15% to $58.85 a

barrel. Brent crude LCOc1 rose 0.39% to $63.97 per barrel. A

report by OPEC released on Wednesday suggested that oil markets

are tighter than previously thought. Traders are also focused on state oil company Saudi Aramco

2222.SE . Its value brushed $2 trillion shares on Thursday as

its shares surged again following its Riyadh stock market debut

on Wednesday.

Sterling vs. odds of Conservative majority in 2019 election https://tmsnrt.rs/2YHhmpw

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